For LNG, globalization is not a dirty word
The expanding role of liquefied natural gas in the world’s economy — led in part by Houston companies is running against recent trends that have made globalization a dirty word.
As cleaner burning natural gas becomes a fuel of choice in a world increasingly concerned about climate change, LNG cargoes will commonly traverse oceans, unloading in markets from Asia to Europe to Latin America, analysts said. Most the of world’s LNG will be exported from three hubs, Qatar, Australia and the United States, particularly the Gulf Coast, analysts said.
“LNG has moved from being a continental or regional business to being a, dare I say, globalized business,” Michael Stoppard, IHS Markit chief global gas strategist, said during CERAWeek, the international energy conference hosted in Houston by his firm. “It is gas and not oil that will lie at the heart of your global volume growth.”
Although a glut of LNG is expected to flood markets over the next few years, global gas demand is projected to grow 50 percent by 2040, to 5.4 trillion cubic meters from 3.6 trillion cubic meters today. The world’s largest energy companies, meanwhile, are expanding their gas holdings; Exxon Mobil said Thursday that it would pay $2.8 billion to buy into the natural gas-rich area offshore of Mozambique from the Italian energy company Eni.
“We keep looking for oil and finding gas,” said Stoppard.
The large supplies of gas found in shale deposits have driven a dramatic transformation in the United States. A decade ago, energy companies were building terminals to import LNG and convert it back to its gaseous state for domestic consumption; today they are building facilities to liquefy natural gas and ship it around the world.
Just about a year ago, Cheniere Energy of Houston became the first U.S. company to export LNG, shipping it from its Sabine Pass Terminal near the Texas border. Last week, Cheniere reported the first quarterly profit in its 20-year history as it generated revenue from LNG exports to China, India, Jordan, Egypt and Pakistan.
Other markets, such as Bangladesh and Bahrain are emerging, said Cheniere Chief Commercial Officer Anatol Feygin.
“The era of U.S. LNG has begun,” Feygin said. “Cheniere is not finished yet. The U.S. market is not finished yet.”
More LNG liquefaction units, called trains, are coming online at the Sabine Pass. The third of six tentatively planned Sabine trains is expected to come online in the coming weeks, while a fourth is slated for the fall.
Cheniere also is developing another project in Corpus Christi, a terminal expected to start operations in 2019.
Likewise, Houston’s Freeport LNG Development project is scheduled to begin operations south of Houston in late 2018. Sempra Energy’s Cameron LNG project in southwestern Louisiana also will come online next year. Several other projects are in development.
Cheniere founder Charif Souki, after his ouster from the company at the end of 2015, launched an LNG company, Houston-based Tellurian, to compete as well. Tellurian, which has built a team of 65 people, went public in February.
Tellurian is developing the $12 billion Driftwood LNG project south of Lake Charles, La. as part of the next wave of export projects.
The goal is to bring it online in 2022, with the expectation that global demand by then will have wiped away the projected oversupply of LNG.
The challenge for U.S. LNG developers is finding buyers, as Cheniere did, to sign long-term deals to help secure financing. Buyers today, however, are looking for short-term deals and greater flexibility in a market that changes seasonally, with premium prices moving with weather patterns from Asia to southern Europe to the Middle East,
“We’re very confident we’re going to find buyers for our gas,” Souki said. “I absolutely have no doubt the global gas market is going to continue to grow.”
Souki added that he expects U.S. drillers to provide an ample supply of cheap natural gas for at least two more decades.
“We think we can offer the low-cost gas on the global basis,” he said. “The business model will find itself simply because the world needs this gas.”